Japan - December 2021

S P OT L I G H T
Savills Research

Regional Japanese
Office Markets

Regional Japanese Office Markets

Market fundamentals remain stable
amidst slight softening in sentiment• Investment-grade offices inmost markets have seen further
mild corrections, and vacancy
rates have also seen moderateincrements.
• All-grade office rental growth
remains mostly flat, whilevacancy has loosened further.
• E xpected cap rates for Grade
A offices have tightened acrossmost markets, showing the
popularity of the sector.
• While the number of workers in
Osaka, Aichi, and Fukuoka havebeen increasing, Miyagi and
Hokkaido have begun to see
notable declines over the past
few years.

• While the current status of thepandemic appears manageable,
uncertainty surrounding new
variants is present.

1.4% YoY, and was the only market to see anincrease in rents. The rental growth seenin Fukuoka is primarily attributed to theaddition of new offices with above-averagerents. Meanwhile, Osaka and Nagoya saw
moderate rental corrections of 2.6% and2.4% YoY, respectively. In comparison, Tokyo
Grade A offices exhibited a much larger yearly
decline of 8.2% in rents, showing that regional
cities are performing relatively better.
ALL-GRADE OFFICES2
With the pandemic dragging into 2021, growthin the all-grade market has slowed for all
regional cities. Sapporo and Fukuoka saw
2 “All-grade” refers to offices typically over 1,000 sq m GFA,
depending on the market. Data is sourced from Miki Shoji.

GRAPH 1: Investment-grade Office Performance, 2H/2021*
2020 Rent

2021 Rent

2020 Vacancy

2021 Vacancy
4.5%

50,00045,000Rent YoY
-8.2%

-2.6%

-2.2%

40,0003.5%

3.2%

35,00030,000

4.0%

1.4%

2.8%

3.0%

2.5%

2.3%

2.5%

25,0002.0%

20,0001.5%

15,0001.0%

1.2%

10,0005,000

VACANCY• The regional cities in this report
all have multiple redevelopment
plans in the pipeline that aim toenergise and promote the city.

1 In each of Osaka, Nagoya, and Fukuoka, Savills monitors
about 50 “investment-grade” office buildings typically with a
GFA of 15,000+ sq m (4,500 tsubo) and a building age of <25years

JPY / TSUBO / MONTH

Summary

INVESTMENT-GRADE OFFICES 1
With the pandemic extending into 2021, theregional investment-grade office markets havecontracted slightly, with vacancy increasing
and rents decreasing in general. However,there are notable disparities between theperformances of each region.
Regarding vacancy, all regions have seen
rates rise to above 2.0%. Osaka saw thelargest loosening of 2.2 percentage points(ppts) YoY, while Fukuoka saw the smallest of
1.4ppts YoY. Much of Osaka’s increment stems
from the poor performance of new buildings.
Looking at rents, Fukuoka saw growth of

0.7%

0.6%

Tokyo

Osaka

0.9%

0.5%
0.0%

0
NagoyaFukuoka

Source Savills Research & Consultancy*Tokyo data represents Grade A office performance in the C5W.

GRAPH 2: All-grade Office Performance, 2H/2021*
2020 Rent

2021 Rent

2020 Vacancy

2021 Vacancy

30,000

10.0%
Rent YoY

20,000

-8.2%

-1.1%

0.9%

1.2%

-0.5%

1.3%

9.0%
8.0%

6.5%

6.4%

7.0%
6.0%

4.9%

15,000

4.3%

4.6%

5.0%

5.2%

4.0%
10,000

2.9%

3.4%

3.0%

3.1%

3.2%
2.3%

5,000

VACANCY

JPY / TSUBO / MONTH

25,000

3.0%
2.0%
1.0%
0.0%

0
Tokyo

Osaka

NagoyaFukuoka

Sendai

SapporoSource Miki Shoji, Savills Research & Consultancy*Market data as of Sep 2020 and Sep 2021

savills.co.jp/insight-and-opinion/2

Regional Japanese Office Markets

the largest increments in rents of 1.3% and1.2% YoY, respectively. On the other hand,
Osaka and Sendai saw contractions of 1.1%
and 0.5% YoY, respectively. Nonetheless,like investment-grade offices, the overall
rental changes of all-grade offices in regional
markets have been mild compared to Tokyo,
which saw an 8.2% decline YoY.
At the same time, vacancy rates havecontinued to inch up across all markets.
With the exception of Sapporo where
vacancy has stayed flattish and below 3.0%,
all other markets exhibited vacancies of over
4.0%, having increased between 1.3ppts and1.8ppts YoY. However, these changes werealso smaller than the 3.0ppts loosening seenin Tokyo.
Indeed, regional markets appear tohave been comparatively insulated from

With high vaccination rates and theplummet in COVID-19 cases, the softening
sentiment seen in the market over thisyear seems manageable. Like Tokyo,
prime assets remain mostly occupied andhave seen few corrections in rent, whilebuildings with poor access are suffering,
resulting in the overall deterioration ofmarket rents and vacancy. However,each region’s fundamentals andprospects look different.

GRAPH 3: Expected Cap Rates for Grade A Offices, 2H/2004 to 2H/2021
8.0%

Osaka

NagoyaFukuoka

SapporoSendaiMarunouchi

EXPECTED CAP RATE

7.0%
6.0%
5.0%
4.0%
3.0%
2.0%

2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H

1.0%
04 05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

Source Japan Real Estate Institute, Savills Research & Consultancy

GRAPH 4: Expected Cap Rate Spreads (vs Marunouchi), 2H/2004 to 2H/2021
Osaka

NagoyaFukuoka

SapporoSendai

2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H

CAP RATE SPREAD VS MARUNOUCHI

3.0%

04 05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20

21

Source Japan Real Estate Institute, Savills Research & Consultancy

3

the pandemic. Tokyo has seen many casesof large floor reductions where multiple
thousands of tsubo were returned. In
contrast, the scale of floor space being
returned rarely exceeds a few hundred tsubo
in regional cities. One reason behind themilder changes in regional cities lies in thelimited proliferation of remote work.
In comparison, Tokyo has seen notably
higher levels of remote work due to thecolossal headquarters of many large
companies with the infrastructure andcapital to implement remote work, as well
as a greater proportion of companies in the
sectors where remote work is easily feasible,
like the IT sector. In addition, workers
in Tokyo on average have notably longer
commuting times, and companies have agreater incentive to introduce remote work.
Indeed, Osaka, which has a relatively higher
level of remote work among regional markets,has already started seeing many workers
going back to the office.
Another reason for regional markets’
stability thus far is their sparing supply
compared to Tokyo, which has seen a large
amount of supply introduced to the market
in the past few years. However, next year
might be an inflection point for some regional
markets, as a large amount of supply is
forecast in 2022. This is especially true for
Osaka, which will see the largest new supply
since 2013. Nagoya and Fukuoka will also seelarge new offices like Urbannet Nagoya Nexta
and the Fukuoka Daimyo Project.
REGIONAL INVESTMENT
According to the bi-annual investor survey
conducted by the Japan Real Estate Institute(JREI) in October 2021, expected cap rates

Regional Japanese Office Markets

GRAPH 5: Investment Volumes by Area for All Asset Types, 2007 to Q3/2021
NagoyaSapporoOther

FukuokaTokyo
Total Investment (RHS)

90%

8.0
7.0

80%

6.0

70%
60%

5.0

50%

4.0

40%

3.0

30%

JPY TRILLIONSPROPORTION OF INVESTMENT (%)

100%

Osaka
Sendai
Yokohama

2.0

20%
10%

1.0

0%

0.0

Source RCA, Savills Research & Consultancy*Transactions where specific locations have not been identified are classified as other.

TABLE 1: BOJ Regional Economic Assessment, October 2021
CHANGE VS
JUL 2021

REGION

TREND

Hokkaido(Sapporo)“The economy has remained in a severe situation due to theimpact of COVID-19, and has been more or less flat.”

Tohoku(Sendai)“The economy has seen a pause in signs of a pick-up,
due mainly to the impact of COVID-19.”

Kanto(Tokyo)“The economy has picked up as a trend, although it has remainedin a severe situation, primarily in consumption of services.”

Tokai(Nagoya)“The economy has seen a pause in signs of a pick-up.”

Kinki(Osaka)“The economy has been picking up on the whole but
downward pressure on consumption has been strong
due to the impact of COVID-19.”

Kyushu(Fukuoka)“The economy has seen a slowdown in the pace of its pick-up.”
Source Bank of Japan, Savills Research & Consultancy

GRAPH 6: Job-to-applicant Ratios, Selected Prefectures, 2000 to September 2021
Tokyo
Fukuoka

Osaka
Miyagi (Sendai)

Aichi (Nagoya)
Hokkaido (Sapporo)

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

Source Ministry of Health, Labour, and Welfare, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/4

in Sendai and Nagoya have both tightened
20 basis points (bps), and Osaka’s expected
cap rates have tightened 10bps from theprevious half-year. In comparison, a majorityof submarkets in Tokyo also saw cap rates
decrease by 10bps. Indeed, the office sector
has maintained its popularity even amidst the
pandemic, and it may have gained increased
attention from investors optimistic about aspeedy economic recovery.
Transactions in 2021 have slowed downmodestly compared to the previous year.
Investment volumes between Q1/2021 andQ3/2021 are 20% lower than the same period
in 2020, whilst the office sector saw a similar
decline of 21%. It should be noted, however,that figures for 2021 are preliminary, andexpected to increase as more transactions
are confirmed.
Nevertheless, a large number of bigticket transactions were observed over the
past half-year. For instance, international
investor interest also remains high, with
Morgan Stanley acquiring 50% of theownership in the Yokohama Nomura
Building for JPY33 billion. Furthermore,while acquisition price was not disclosed,
Phoenix Property Investors acquired theIdemitsu Nagahori Building in Osaka. As
investors gain a better grasp of the levelof demand for offices with the pandemic
winding down and most employees
returning to the office in regional cities,
more transactions are expected in the
coming year.
REGIONAL MACRO AND
DEMOGRAPHICS
Japan’s GDP has not seen significant changes
over the past two quarters, shrinking 0.9%
in Q3/2021 after growing slightly in Q2/2021.
Indeed, COVID-19 cases were high during
this period, which drove some uncertainty
into the market. This was reflected in the
Bank of Japan’s (BOJ) Regional Economic
Report in October 2021 which had a negative
outlook on the economies of most regions,with the exception of Kanto and Hokkaido
whose outlooks were neutral. However, withthe high vaccination rates and the plummet
in COVID-19 cases, prospects of all regions
should be able to look forward to recovery as
the current pandemic appears manageable.
The job-to-applicant ratio has increased
modestly over the past half-year, with all
prefectures covered in this report exhibitinglevels above 1.0x. Some businesses may haveanticipated a recovery and increased hiring.
Demographic changes over the past
decade vary significantly across different
prefectures. According to estimates of theRegional Japanese Office Markets

destination for overseas tourists before thepandemic, this will provide the city withmore opportunities to expand in a postpandemic world.
In Nagoya, the anticipated Maglev project
connecting Tokyo and Osaka will boost its
position as a regional hub, and the planned
redevelopment projects like Sakae Hiroba
and Nagoya Mitsukoshi Sakae should further
boost interest in the city. Meanwhile, theTenjin Big Bang and Hakata Connected
projects, which will redevelop a spate ofbuildings in Fukuoka, will transform thecity’s landscape and help it progress toward
its goal as a technological hub. Tenjin
Business Center, the first building as partof the Tenjin Bing Bang, has attained thehighest rents in the city at JPY30,000, andattracted large international tenants. After
Fukuoka Building’s completion in 2024,
the top rents in Fukuoka might be almost
equivalent to those of Osaka and Nagoya.
Further up north, the Sendai City
Reconstruction Project will redevelop manyold buildings in order to revitalise the city.
In Sapporo, the Hokkaido Shinkansen thatwill connect Sapporo to the rest of Japan isunderway, and there are many development
plans around the station. Overall, theredevelopment projects in these cities will
strengthen their positions as regional hubs.

Labour Force Survey, Tokyo’s growth inits labour force 3 was the largest by far, at
12% over the past ten years. Elsewhere,
Osaka, Aichi and Fukuoka saw an increaseof about 5 to 6% over the same period. The
respective cities of these prefectures serve
as major regional hubs and are thus able toattract migrants from surrounding areas
with the job opportunities they can provide,
and consequently boost demand for offices.
Indeed, the office markets in these cities
have exhibited resiliency over the past years,
which has encouraged developments of
new high-quality office buildings. However,Hokkaido saw a decrease of around 4%,
and Miyagi’s labour force has also been
decreasing slowly over the past few years.
While Sapporo and Sendai still serve as
regional hubs, they appear to be facingstronger demographic headwinds, and may
have implications on economic growth in
the long-term.
DEVELOPMENTS IN REGIONAL
CITIES
Looking ahead, the regional cities in thisreport all have substantial infrastructuraldevelopment plans in the pipeline, some ofwhich are covered in the [Japan’s Prospects
Towards 2030] report. For instance, Osaka’s
Umekita 2nd Project in the city centre
that will introduce new state-of-the-art
offices, hotels, commercial space, andresidences to the market between 2024 and2027. Moreover, plans for the country’s
first integrated resort in Osaka Bay are
underway. Since Osaka was a popular

OUTLOOK
The regional office market has weakened
slightly, with vacancies increasing andrents generally seeing corrections. Indeed,
the prolonged state of the pandemic andfluctuating COVID-19 cases over the past

3 Defined as those over 15 years of age who are working or
looking for work.

GRAPH 7: Labour Force by Prefecture, 2010 to Q2/2021
Tokyo

Osaka

Aichi

FukuokaMiyagi2016

2018

Hokkaido

9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2010

2011

2012

2013

2014

2015

2017

2019

2020

2021

Source Ministry of Health, Labour, and Welfare, Savills Research & Consultancy

5half year drove some uncertainty into themarket, and many tenants would havecontinued their wait-and-see stance when
deciding on office movements.
Nonetheless, office fundamentals inJapan appear stable overall. The country’s
vaccination rate is almost 80% and thenumber of COVID-19 cases has plummeted.
Moreover, according to Google Mobility,
countrywide office utilisation is onlyaround 10% lower than pre-pandemic
levels, showing that many companies havewelcomed employees back to the office.
While remote work has become more
popular and has contributed to someincreases in vacancy, not many companies
have adopted this practice outside of Tokyo.
Furthermore, small and medium-sizedenterprises (SMEs) are less likely to have theresources and capacity to implement regularremote work, contributing to stable officedemand for regional cities.
However, the regional office markets facechallenges down the road. For instance, it
is uncertain if the market will be able toabsorb the large amount of supply forecast
to enter the market in the near future,especially in Osaka, given that vacancies
have been creeping up. Even if the new
offices can fill up space, they might offer
substantial incentives. Elsewhere, offices
presently with high vacancies are usually
poorly located and may further suffer fromthe introduction of new high-specification
offices in central areas. In addition,
uncertainty surrounding the pandemic is
still present as the potential threat of new
virus variants, like the Omicron variant,adds a layer of unpredictability to themarket. Overall, while the regional markets’
long-term fundamentals remain sound andthe current status quo of the pandemic looks
manageable, the situation is still fluid andprospects remain unclear.

Regional Japanese Office Markets

OSAKA CITY

GRAPH 8: New NRA Office Supply in Osaka City, 2006 to 2023F
70,00060,00050,000TSUBO

40,00030,00020,00010,0000

Source Sanko Estate, Building Group, Savills Research & Consultancy

GRAPH 9: Vacancy Rate in Osaka City by Area, 2011 to Q3/2021

25%

Average
Yodoyabashi-Honmachi
Shin-Osaka

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

VACANCY

20%

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 10: Average Rent in Osaka City by Area, 2011 to Q3/2021
Average
Yodoyabashi-Honmachi
Shin-Osaka

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

17,000JPY / TSUBO / MONTH

16,00015,00014,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

6

Net Rentable Area (NRA)
In 2022, the market looks to add over 40,000
tsubo of NRA, four times larger than 2021’s
supply and the largest amount since 2013.
Despite the relatively poor reception of new
offices completed in 2021, two of the largest
buildings that make up most of 2022’s supply,
Osaka Umeda Twin Towers South with over
25,000 tsubo of NRA and the Nippon Life
Yodoyabashi Building with over 10,000
tsubo of NRA, have seen modest amounts of
pre-leasing activity. Furthermore, minimal
supply is expected in 2023, which should
give the market additional time to absorb the
new supply.
However, 2024 looks to add over 60,000
tsubo of NRA to the market – around 50%
more than the levels in 2022. The two mostnotable additions will be the second phaseof the Umekita Project and the Umeda
3-Chome Project. One concern is that thisnew supply will be concentrated around the
Umeda area, which already will see a large
influx in 2022. The submarket might not
be ready to absorb the sizable amount of
supply in such a short time frame, although
it admittedly has three years till then to
prepare.
Vacancy
Investment-grade vacancy rates haveincreased 1.5ppts HoH to 2.8%. A sizable
portion of this increase came from therelatively large building that opened inAugust 2021, the Honmachi Sankei Building
with 5,700 tsubo of NRA, which remains
largely vacant.
All-grade vacancy rates continued theirslow upward ascent this half-year to thehighest levels seen since 2017. Indeed,vacancy rates have climbed 2.3ppts since
the start of 2020 and 1.1ppts YoY to 4.3%.
Some smaller new buildings in areas suchas Yodoyabashi-Honmachi and Shin-Osaka
still sit more than half empty and havecontributed to the vacancy uptick.
Rent
Rents for investment-grade offices in Osaka
have decreased 1.1% HoH to JPY22,500.
Although the pre-pandemic momentum
carried average rents to over JPY23,000,
rents have now contracted back to 2019 levels.
Specifically, outside Semba which stayed flatat JPY17,500 per tsubo, all other submarkets
have seen a decline.
All-grade rents have also dipped slightly
over the past half-year and are currently
at levels that were seen right before thepandemic. Specifically, rents in Osaka saw a
dip of 1.1% YoY to JPY11,800 per tsubo. At thesubmarket level, Shinsaibashi saw the largest

Regional Japanese Office Markets

TABLE 2: Osaka Prefecture Key Macro Indicators

TOKYO

OSAKA

Real GDP (JPY trillion) (FY2018)

105.9

39.0

Real GDP (YoY%)

0.5%

0.1%

% of Japan (FY2018)

19%

7%

Population (million)

14.0

8.8

Job to applicant ratio

1.2

1.1

Source Cabinet Office, Osaka Prefectural Government, Savills Research & Consultancy

TABLE 3: Osaka Investment-grade Offices

2H/2021

HOH

YOY

Rent

22,500

-1.1%

-2.6%

Vacancy

2.8%+1.5ppts+2.2ppts

Top Rent

35,00000Source Savills Research & Consultancy

decline of 4.3% YoY to JPY12,000 per tsubo,and other submarkets saw declines ranging
0.5% to 2.1%. The only member to buck thistrend was Shin-Osaka, which saw an increaseof 3.6% YoY to JPY11,400 per tsubo due to the
PMO EX Shin-Osaka building’s asking rents
bringing up the overall submarket average.
Despite the contraction seen over the
past year, rental levels are currently overall
higher than they were two years ago. Prime
assets have maintained stable performances
while top rents hover at JPY35,000 per tsubo.
Furthermore, Umeda Twin Towers South,
which will open in Spring 2022, could reach
upwards of JPY38,000 per tsubo, setting a
new top rent. In addition, the Umeda 3-Chomeproject, slated for completion in 2024, is
expected to push the ceiling even higher.
Umeda
Umeda’s investment-grade rents contracted
by 5.6% HoH to JPY25,100, which has caused
its premium over the rest of the submarkets
to decrease from 17% to 12% over the last
half year, though it remains the mostexpensive submarket in Osaka. The range
of investment-grade rents is still between
JPY20,000 and JPY35,000 per tsubo, having
remained largely unchanged through the
pandemic. While some patches of vacant
space have arisen in a few buildings, vacancy
levels are still tight at 2.0%.

Yodoyabashi-Honmachi
The investment-grade offices in the
Yodoyabashi-Honmachi submarket haveoverall managed a slight increase in rent by
1.3% HoH to JPY23,400. However, in terms ofvacancy, the submarket saw an loosening of
8.0ppts HoH to 8.4%.
The vacancy loosening, and to a lesser extent
the increase in rents, were largely due to theaddition of the Honmachi Sankei Building,which remains mostly unoccupied and has
above average rents. With other new offices
coming onto the market in nearby locationsin 2022, further rental adjustments might benecessary in order to quickly attract tenants.
Shin-Osaka
Shin-Osaka’s investment-grade rents softenedby 1.1% HoH to JPY20,400 per tsubo. It appears
that many buildings in Shin-Osaka are also
struggling to fill floors with rents around
JPY20,000 per tsubo, much lower than prepandemic levels of JPY25,000. In addition,buildings further away from the station havealso experienced some upticks in vacancy.
A spate of medium-sized completions is
expected in Shin-Osaka over the next year.
For instance, the Shin-Osaka Dai 2 NK and
Dai 3 NK Buildings and Shin-Osaka Dai 5 Doi
Building will add over 10,000 tsubo of NRA
to the submarket. This new supply is likely tofurther dampen the submarket that is alreadystruggling.

7

Outlook
Since the middle of last year, the market hascontinued to deteriorate, with rents fallingand vacancy creeping up. Leasing activity
is rather stagnant, and large spaces that are
more than 200 tsubo are currently difficult
to find tenants. New leases with rents in the
JPY30,000 range are becoming unheard of in
the current environment.
Given these situations above, landlords
have continued to adjust rents in search
for an equilibrium point with tenants.
Many landlords also have to offer various
incentives to keep tenants, and somehave compromised by allowing tenants
to partially return their rented space, apractice that is uncommon outside Tokyo
and Osaka. Potential vacancy, which could
materialise next spring, is a big concern forlandlords.
Looking ahead, some of supply in 2022
appears pre-leased, which is an encouraging
sign for the market. Additionally,
although some major companies in Osaka
implemented remote work, many workers
seem to have started to return to the officewith the pandemic subsiding. After thelarge supply in 2022, the market will havesome breathing room in 2023 as supply islimited that year. Therefore, how the market
performs in 2022 will be an important
indication for Osaka’s mid-term prospects.

Regional Japanese Office Markets

NAGOYA CITY

GRAPH 11: New NRA Office Supply in Nagoya City, 2006 to 2023F
50,00045,00040,00035,000TSUBO

30,00025,00020,00015,00010,0005,000
0Source Sanko Estate, Savills Research & Consultancy

GRAPH 12: Vacancy Rate in Nagoya City by Area, 2011 to Q3/2021
Average

Meieki

FushimiSakae

Marunouchi

20%

VACANCY

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 13: Average Rent in Nagoya City by Area, 2011 to Q3/2021
Average

Meieki

FushimiSakae

Marunouchi

16,000JPY / TSUBO / MONTH

15,00014,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

8

NRA
Although total NRA is still below the peak
it reached in 2017, it increased steadily
throughout 2021, adding a little over 18,000
tsubo of NRA throughout the year. The
biggest contributors to NRA in 2021 were the
Nagoya Mitsui Building North and BIZrium
Nagoya, which together comprise more thanhalf of the supply in 2021.
Overall, market reactions have been
mixed. Nagoya Mitsui Building North, which
opened in February with 4,500 tsubo of NRA,
has seen its occupancy continue to increase.
Elsewhere, BIZrium Nagoya, which openedin October with 6,500 tsubo of NRA, still hassome vacant space, but there is hope that it will
fill up soon given its unique selling points andthe impressive footfall that goes through theretail space of the property. On the other hand,
other new buildings that will be completed
later in the year have not fared as well in theirpre-leasing activities. Nonetheless, landlords
appear confident in their ability to attract new
tenants if they lower rents.
Looking ahead, 2022 and 2023 will
provide lower levels of supply than 2021.
The largest building to open in 2022, Urban
Net Nagoya Nexta, with nearly 5,000 tsubo
of NRA, is nearly fully pre-leased. In fact, it
attracted large tenants such as NGK who tooka 1,400 tsubo lease after citing the building’s
convenience and amenities. Overall, the area
and infrastructure redevelopments in Nagoya
will continue increasing the liveability
and vibrancy of the city and should help tocontinue to attract tenants.
Vacancy
For the first time since 2017, the vacancy rate
for investment-grade buildings exceeded
3%, increasing 0.5ppts HoH and 1.9ppts YoY
to 3.2% in 2H/2021. The primary cause was
the relatively poor performance of a few
buildings in inconvenient areas within Sakae
and Marunouchi. On the other hand, while
all other submarkets saw increases, Meieki’s
vacancy stayed flat HoH at 3.1%. All things
considered, investment-grade buildings in
Nagoya appear to be holding well.
Elsewhere, the all-grade market’s vacancy
stands at 4.9%, increasing 1.9ppts YoY.
Fushimi and Meieki led the increases with aloosening of 3.4ppts YoY to 5.8% and 2.0ppts
to 5.6%. However, it is worth noting thatFushimi and Meieki saw a large amount of
new supply in 2021. Sakae also contributed
to vacancy increase by loosening by 1.1ppts
YoY to 4.0%. On the other hand, Marunouchi
bucked the trend and saw a decrease of
0.8ppts YoY to 2.8%. That said, Marunouchi’svacancy is likely to see a jump as the
Marunouchi One will be opening late thisyear with a large amount of vacant space.

Regional Japanese Office Markets

TABLE 4: Aichi Prefecture Key Macro Indicators

TOKYO

AICHI

Real GDP (JPY trillion) (FY2018)

105.9

39.4

Real GDP (YoY%)

0.5%

1.9%

% of Japan (FY2018)

19%

7%

Population (million)

14.0

7.5

Job to applicant ratio

1.2

1.3

Source Cabinet Office, Aichi Prefectural Government, Savills Research & Consultancy

TABLE 5: Nagoya Investment-grade Offices

2H/2021

HOH

YOY

Rent

20,200

-1.7%

-2.2%

Vacancy

3.2%+0.5ppts+1.9ppts

Top Rent

35,00000Source Savills Research & Consultancy

Rent
Investment-grade rents declined 1.7% HoH
and 2.2% YoY to JPY20,200 per tsubo. This
stemmed from many older buildings withpoor accessibility in Meieki and Marunouchi
experiencing seeing rental corrections.
Newer buildings that are set to open thiswinter are also expected to open with rents
below the market average of investmentgrade buildings, suggesting the market
average will probably continue to decrease.
In contrast, all-grade rents have continued
to slowly rise by 0.9% YoY to JPY12,000
despite the pandemic slowing down therate of growth. The growth was led by thesubmarkets of Meieki and Marunouchi, whichgrew 2.0% and 1.1% YoY, respectively.
Meieki
Meieki’s investment-grade rents saw adecrease of 2.8% HoH and 5.4% YoY to
JPY27,000, but still remain the highest
in Nagoya. It appears that the rental
adjustments helped secure tenants in thissubmarket as its vacancy has managed
to stay flat HoH at 3.1% while the othersubmarkets saw a loosening.
With the aforementioned rental
corrections, the range of rents has decreased
to between JPY23,000 and JPY35,000,
showing a decrease of JPY3,000 on thelower end. Like other markets, buildings
without convenient access to train stations
are disproportionally suffering, andconsequentially lowering the rents of theoverall market.
Fushimi and Marunouchi
Investment-grade rents in Fushimi andMarunouchi saw diverging trends in
2H/2021. The former stayed flat HoH andYoY at JPY18,800 per tsubo while the latter
saw a contraction of 2.2% both HoH and YoY
to JPY16,800 per tsubo.
The changes in vacancy reflected asimilar trend, with Fushimi seeing a minor
loosening of 0.6ppts HoH to 1.3%. Thissuggests that the market may have found an
equilibrium point for rents. However, theKanden Fudosan Fushimi Building opening
in November may disturb this balance. In
contrast, Marunouchi has seen vacancy
loosen 1.4ppts HoH and 0.9ppts YoY to 2.1%.
Like Fushimi, Marunouchi also has a majorbuilding opening this winter that will likely
increase the average vacancy of the wholesubmarket.
Outlook
The Nagoya office market appears tepid with
the investment-grade market showing some9

weakening. Although some newer buildings
are struggling, offices with asking rates thatare perceived as reasonable appear able tosecure tenants without much difficulty.
The new BIZrium Nagoya is gaining
traction. The property was reportedly 70%
occupied at its opening. The project is uniquein its concept as its office floors are located on
top of a shopping mall, and also because theproperty is stretched horizontally.
Currently, some buildings in Nagoya havevacancies of over 2,000 tsubo, especially in
new buildings supplied this year. In addition,
Hirokoji Cross Tower has large amount ofavailability which is increasing vacancy
overall in Nagoya. That said, those buildings
should become filled as landlords start toadjust their target rents to where the market
is trending.
Fortunately, confidence levels in Nagoya’s
biggest sector, manufacturing, have been
growing over 2H/2021. For instance, thelargest manufacturer, Toyota, may resume
expansion plans as its profits soar. This will
likely have a knock-on effect to its affiliates
and vendors, and potentially fuel office leasing
demand moving forward in Nagoya. Together
with the redevelopments downtown that havecontinued to the vibrancy and liveability of
the city, Nagoya’s outlook appears stable.

Regional Japanese Office Markets

FUKUOKA CITY

GRAPH 14: New NRA Office Supply in Fukuoka City, 2006 to 2023F
35,00030,000TSUBO

25,00020,00015,00010,0005,000
0Source Sanko Estate,Savills Research & Consultancy

GRAPH 15: Vacancy Rate in Fukuoka City by Area, 2011 to Q3/2021
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West

20%

VACANCY

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 16: Average Rent in Fukuoka City by Area, 2011 to Q3/2021

13,000

Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West12,500JPY / TSUBO / MONTH

12,00011,50011,00010,50010,000
9,500
9,000
8,500
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

10

NRA
In 2021, Fukuoka introduced the largest
supply in the past decade, and the officestock of the market is at its peak. Most of theincrease was seen in the main two areas of
Fukuoka - Tenjin and Hakata. Going forward,
supply is expected to continue increasing in
2022 before cooling off slightly in 2023.
Overall, the market reaction to the new
supply in 2021 has been positive, with mostof it having been absorbed. Impressively,
Tenjin Business Center, the first building
utilising the deregulation that came with
Fukuoka City’s redevelopment scheme,
Tenjin Big Bang, came online nearly fully
occupied, showing the strength of themarket. 2022 will also introduce over
20,000 tsubo of NRA, approximately fourtimes the average amount introduced
between 2011 and 2020. While most of the
supply in 2022 will be built a little further
away from stations, these properties appear
to be successful in attracting tenants sofar. One exception would be the Fukuoka
Daimyo Project, which will open at the very
end of 2022 and therefore still has somemore time for pre-leasing.
After a slight reprieve in 2023, various
redevelopments are expected to come to themarket in 2024. For instance, 2024 will see
Nishitetsu’s redevelopment of the Fukuoka
Building and is reportedly aiming for rentsof JPY35,000 per tsubo – near top rents
in Osaka and Nagoya. Moving forward,
more buildings are expected to apply forredevelopment to utilise the height and floorarea ratio deregulations. Overall, Fukuoka
looks set to refresh its office stock, which
will be a necessary move given that it has
one of the oldest amongst Japan’s regional
cities.
Vacancy
After exceeding 1% for the first time in five
years, vacancy levels of investment-gradebuildings continued to rise by 0.9ppts HoH to
2.3%. The root cause for the increase was thesecondary vacancy caused by new supply, andsome residual vacancy in the new buildings.
However, vacancy levels appear manageable
at present.
At the submarket level, Tenjin saw thelargest increase in vacancy of 3.4ppts HoH
to 5.1%. The addition of the enormous Tenjin
Business Center contributed to most of this
temporary increase, as it did not come tothe market fully leased. On the other hand,vacancy increments in other submarkets
were minor, and submarkets like Yakuin
and Nakasu actually saw contractions invacancy.
Elsewhere, the all-grade market saw aloosening of 1.4ppts YoY to 4.6%. Here,Southeast of Hakata Station and Gion were
the primary contributors, with increments

Regional Japanese Office Markets

TABLE 6: Fukuoka Prefecture Key Macro Indicators*

TOKYO

FUKUOKA

Real GDP (JPY trillion) (FY2018)

105.9

19.1

Real GDP (YoY%)

0.5%

0.9%

% of Japan (FY2018)

19%

3%

Population (million)

14.0

5.1

Job to applicant ratio

1.2

1.1

Source Cabinet Office, Fukuoka Prefectural Government, Savills Research & Consultancy*Real GDP for Japan is as of Q3/2020 and is preliminary, for Tokyo, Fukuoka and % of Japan, 2015.

TABLE 7: Fukuoka Investment-grade Offices

2H/2021

HOH

YOY

Rent

19,1000.7%

1.4%

Vacancy

2.3%+0.9ppts+1.5ppts

Top Rent

30,000+5,000+5,000Source Savills Research & Consultancy

of 2.7ppts YoY to 5.4% and 2.6ppts YoY to
5.6%, respectively. Meanwhile, Akasaka
saw its vacancy contract over the lastyear by 1.0ppts to 4.3%. Overall, small to
mid-sized buildings still generally havehigher vacancies compared to their larger
counterparts.
Rent
In 2H/2021, investment-grade rents inFukuoka increased by 0.7% HoH and1.4% YoY to JPY19,100 per tsubo, partiallystemming from the new addition of Tenjin
Business Center at JPY30,000 per tsubo.
Throughout the pandemic, Fukuoka rental
levels have maintained steady growth thanks
to a plethora of new buildings, and steadydemand supplied by various companies
opening regional offices in Fukuoka.
All-grade rents in Fukuoka havemaintained growth and increased to
JPY11,200 per tsubo in 2H/2021 – once again
setting a new high. This translates to anincrease of 1.2% YoY, higher growth thanmost of its regional peers.
HakataInvestment-grade buildings in the Hakata
submarket have remained popular, but rents
have seen a slight contraction by 0.3% HoH to
JPY20,400 per tsubo. Despite the contraction

over the past half year, Hakata has still
maintained an annual growth of 0.6%.
Overall, rents still range between JPY17,000
and JPY25,000.
Hakata saw a moderate loosening invacancy of 0.4ppts HoH to 1.8%. The
most recent building to open in Hakata,
Hakata Fukami Park Building, continues
to see progress in acquiring new tenants,suggesting that vacancy may decrease
moving forward.
TenjinRents of Tenjin’s investment-grade buildings
saw an increase of 3.5% HoH to JPY21,400.
As mentioned earlier, the primary source ofgrowth was the addition of Tenjin BusinessCenter. The building was also able to attract
some large international names such as
Google and the Boston Consulting Group. In
addition, Japanet has also reportedly moved
its Tokyo headquarters to the building.
Tenjin’s vacancy has also increased thishalf-year as a result of the addition of thisbuilding. However, with an impressive tenantlist, the property looks on track to fill its
vacant space.
Outlook
The office market in Fukuoka has fared
well during the pandemic without much11

deterioration. Vacancy remains tight andrents continue to climb. Indeed, the strong
performance of Tenjin Business Center is agood sign for future supply. Furthermore, thesecondary vacancy caused by the large supply
over the last year appears manageable.
Looking ahead, the supply in 2022 looks
promising given the strong absorption of2021’s large supply, although there are someconcerns over the large Fukuoka Daimyo
Project in 2022. Fortunately, with thelifting of the state of emergency and theplummeting COVID-19 cases, site visits forpotential tenant moves are picking up whileplans for office renovations also resuming.
The new supply over the coming years is
expected to revitalise the city by creating
new landmarks and adding vibrancy toprime areas. Furthermore, the extensionof the Nanakuma Line from Hakata tosouthern Tenjin will also improve theconnection between central Fukuoka andTenjin, which should lead to increased
footfall in the two areas. Large internationalfirms, such as Google and Boston Consulting
Group, have recognised the growing
potential in Fukuoka and have set up offices
there. While there are some concerns
surround the potential threat of new
COVID-19 variants, Fukuoka’s prospects
look good overall.

Regional Japanese Office Markets

GRAPH 17: Vacancy Rate in Sendai City by Area, 2011 toQ3/202130%

Average
City Hall

Station Front
Station East

1-bancho
Outer Area

25%

VACANCY

20%

15%

10%

5%

0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source Miki Shoji, Savills Research & Consultancy

GRAPH 18: Average Rent in Sendai City by Area, 2011 toQ3/2021
Average
City Hall
12,000Station Front
Station East

1-bancho
Outer Area

JPY / TSUBO / MONTH

11,00010,000
9,000
8,000
7,000
6,000

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source Miki Shoji, Savills Research & Consultancy

TABLE 8: Miyagi Prefecture Key Macro IndicatorsTOKYO

MIYAGI

Real GDP (JPY trillion) (FY2018)

105.9

9.6

Real GDP (YoY%)

0.5%

0.6%

% of Japan (FY2018)

19%

2%

Population (million)

14.0

2.3

Job to applicant ratio

1.2

1.2

Source Cabinet Office, Miyagi Prefectural Government,
Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

SENDAI CITY
Supply and Demand
The levels of office supply in Sendai
have been relatively flat over the past
decade. For instance, as of September
2021, Sendai’s office NRA has only grown
2.0% since the beginning of 2011, and themarket’s overall supply remains below
500,000 tsubo of NRA. Nonetheless,this appears to be a manageable level
for Sendai, as the supply has since been
gradually absorbed, with vacancy levels
decreasing from highs of around 20% at
the start of the decade.
In contrast to the previous decade,2021 has been an active year for themarket, and NRA has grown over 1.0%
since the beginning of the year. Despite
the pandemic, the large supply appears
to have been well received. In fact, thetwo primary contributors, the JR Sendai
East Building and the Milene T Sendai
Building, experienced good pre-leasing
activity before coming to the market.
Looking ahead, 2023 looks to add a large
amount of new supply close to Sendai
station with the Yodobashi Sendai Daiichi Building project adding 23,000 sq mof office space in GFA.
Vacancy
Approaching the end of 2021, the all-grade
vacancy rate in Sendai was at 6.5%, andhas overall not seen significant changes
over the past half-year. Nonetheless, thevacancy rate has increased more than2.0ppts from the pre-COVID era in 2019,
showing that the effects of the pandemic
are still lingering in the city. It should also
be noted that Sendai is the only city in thisreport whose vacancy levels are as high as
Tokyo.
Although vacancy has remained mostly
flat, there were notable differences
between the performance of eachsubmarket. For instance, the 1-bancho
and the Outer Area submarket saw
increments in vacancy of 1.4ppts and1.2ppts over the past half-year. These
two submarkets have seen some tenants
moving out because of weakening
market conditions and some increases intelework, leading to the rise in vacancy.
Meanwhile, Station East saw a notabledecline in vacancy of 1.6ppts to 6.1%.
Although the submarket saw a large
uptick in vacancy at the start of the year
as a result of the JR Sendai East Buildingthat introduced large new supply, it
appears to have been steadily absorbed by
the market, which led to the encouraging
decline in vacancy. Station Front also
saw a decline in vacancy of 0.7ppts from12

the past half-year despite the additionof the Milene T Sendai Building during
the period, showing the resilience of thesubmarket.
Rent
Rents in Sendai have overall been steadyover the past decade, growing modestly
even into the pandemic. However,rents have weakened slightly over the
past half-year, decreasing 0.5% YoY to
JPY9,300 per tsubo. Indeed, the gradualtoll from COVID-19 has started to slowly
affect average rental levels despite theintroduction of two large buildings withabove-average rents.
Station East was the only submarket tosee rents increase over the year, growing
2.1% YoY. However, it should be notedthat the addition of the JR Sendai East
Building would have contributed to thisgrowth. All other submarkets saw dipsin rent ranging 0.7% to 1.4% YoY. Station
Front rents remain the most expensive
at JPY10,900 per tsubo, Outer Area rents
are still the most affordable, at JPY6,900
per tsubo.
OutlookSendai’s rents have seen their first annual
correction since 2017, and vacancies still
remain higher than pre-COVID times.
However, Sendai has not been as overtly
affected by the pandemic as Tokyo has.
The fact that remote work is much lessprevalent in the city than its larger
counterparts, and that the city has caught
the attention of IT companies and callcentres, are some factors that have helped
to prop office demand up in the city.
The demographic trajectory for
Sendai is admittedly worrying for thecity with its ageing population. In fact,
its working-age population is projected
to shrink more rapidly than other major
regional cities. Nonetheless, Sendai has
started making headway with the Sendai
City Reconstruction Project, which aims
to redevelop multiple old buildings in thecity centre and create high quality offices
to attract companies in the Information
and Communications Technology
industry. Indeed, it seems that a core
strategy of the city’s plans is to become
an IT hub, and if successful, may create
more jobs and attract people back into
the city.

Regional Japanese Office Markets

SAPPORO CITY

GRAPH 19: Vacancy Rate in Sapporo City by Area, 2011 to Q3/2021
Average
Park South

Station Front
Outer South

Station East-West
Station North

20%

VACANCY

15%

10%

5%

0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 20: Average Rent in Sapporo City by Area, 2011 to Q3/2021
Average
Park South

Station Front
Outer South

Station East-West
Station North

13,000JPY / TSUBO / MONTH

12,00011,00010,000
9,000
8,000
7,000
6,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

Supply and Demand
Sapporo saw a substantial amount of new
supply in 2021, with over 5,000 tsubo of
NRA introduced to the market. Newerbuildings around the main station and along
Odori have found success, and many haveopened with limited vacancy or were filled
up soon afterwards. For instance, the largest
new building this year, The Peak Sapporo,added over 3,000 tsubo of NRA in June andenjoys limited vacancy.
After a comparatively quiet year for supply
in 2022, 2023 will see approximately 7,000
tsubo of NRA – one of the largest years for
supply in the past decade. The two buildings
to open in 2023, One Sapporo Station
Tower and the Sapporo Daiichi Seimei
Building, should perform well given thatthey will open near the main station where
demand has been high. Call centres and IT
companies in particular have continued todrive leasing demand in Sapporo.
Vacancy
All-grade vacancy has risen 0.6ppts YoY
to 2.9%, the lowest vacancy rate amongst
Japan’s major regional cities. The vacancy
increase seen this year was primarily due tothe loosening in Station North where mostof the new supply has been concentrated.
Specifically, while The Peak Sapporo appears
to be close to full occupancy, The Place
Sapporo still seems to have considerable
vacancy after opening in August. However,the situation looks to improve as thecompetition between tenants increases inother submarkets, such as Station Front, andincreases in the number of inquiries havebeen reported.

TABLE 9: Hokkaido Prefecture Key Macro IndicatorsTOKYO

HOKKAIDO

Real GDP (JPY trillion) (FY2018)

105.9

19.7

Real GDP (YoY%)

0.5%

0.6%

% of Japan (FY2018)

19%

4%

Population (million)

14.0

5.2

Job to applicant ratio

1.2

1.0

Source Cabinet Office, Hokkaido Prefectural Government, Savills Research & Consultancy

savills.co.jp/insight-and-opinion/

13

Regional Japanese Office Markets

All other submarkets have seen vacancy
tighten, particularly in the more affordable
submarkets, such as Park South and Outer
South. Furthermore, the two large buildingsthat opened in 2020, S-Building Sapporo
Odori and Daido Seimei Sapporo Building,seem almost fully occupied. Looking ahead,
Station East-West, a submarket currently
with under 2.0% vacancy, will be tested in
2023 as a large portion of supply that year
will be concentrated in this submarket.
Rent
Although growth has slowed, rents havenonetheless seen an annual increment
across all submarkets. Overall, Sapporo’s
average rents increased by 1.3% YoY to
JPY9,500 per tsubo in 2H/2021. Indeed,with newer, more expensive buildings being
added to the market, average rents are
currently at their highest levels since theearly 2000s. Furthermore, the city’s various
business initiatives seem to have also
supported demand and helped this rental
growth trend.
Rents in the Station Front submarket
remain the highest in Sapporo at around
JPY12,400 per tsubo. All other submarkets
have experienced rental growth overthe past half-year. Specifically, all-grade
rents in Station North saw an increase of
5.1% YoY, most likely driven by the new
redevelopments.
OutlookCompared to other regional cities, Sapporo’s
business environment took less of hit fromthe pandemic. Sapporo’s bread and butter for
office leasing demand, call centres and ITrelated companies, remain stable, although
there are some concerns for both industries
over the longer term. Overall, the current

status quo appears to be manageable,
especially with the high vaccination rates
and the plummet in COVID-19 cases in the
country.
Given that much of the current officestock was geared toward the 1972 WinterOlympics, Sapporo has some of the oldest
stock amongst Japan’s regional cities, withnearly 36% being built before the 1981
earthquake resistance regulation reform.
Fortunately, multiple redevelopment
projects are still underway in front of
Sapporo Station and will help to revitalise
the city in the long-term. Indeed, Sapporo
City has introduced a development guidance
policy for city centre redevelopments, and isalso providing office building construction
subsidies, which will help developers takefull advantage of the new Shinkansen linethat will come online in 2030.

For more information about this report, please contact us
Savills Japan

Savills Research

Christian Mancini
CEO, Asia Pacific(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Pacific+852 2842 4573
ssmith@savills.com.hk

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK,continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
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14